Three decades after oil bust, Permian Basin booms again

1of8An RV park is located near a pump jack in Midland, Texas, Wednesday, July 25, 2012. The oil and gas boom in the Permian Basin has driven up demand for housing and services.Photo: Jerry Lara, San Antonio Express-News

2of8Braxton Vick, 17, cools off with a mister at the E&D RV Park near Stanton, Texas, Wednesday, July 25, 2012. With the oil and gas boom around the Permian Basin, housing is scares and expensive. Slots at the park go for $400 a month.Photo: Jerry Lara, San Antonio Express-News

3of8A roustabout worker washes a drilling rig at a lease off Loving County Road 408 near Mentone, Texas, Wednesday, July 25, 2012. Located 130 miles west of Midland, Texas, the county has a permanent population of about 85. Around 1,000 to 1,500 people work the oil fields in the county during working hours. The county has no paved county roads according to County Judge Skeet Jones. In the last four years, the county has spent $350,000 a year maintaining them.Photo: Jerry Lara, San Antonio Express-News

4of8A customer leaves the only business in Loving County, Texas, Wednesday, July 25, 2012. Located in Mentone, Texas 130 miles west of Midland, the convenience store serves locals and oil field workers. "Every day around 4:30, it's beer-thirty," says store worker, Caren Calloway.Photo: Jerry Lara, San Antonio Express-News

5of8Visiting her grandparents for part of the summer, Darbi Doan, 8, second from left, hangs out with neighbors under a canopy at the E&D RV Park near Stanton, Texas, Wednesday, July 25, 2012. Doan's grandparents pay $400 a month for a slot at the park. "We've been living here six months. This is our living room," said Doan's grandmother, Toni Robertson. With Doan are from left, Braxton Vick, 17, Jordan Vick, 14, Dene Vick, 36, and Connor Howell, 45.Photo: Jerry Lara, San Antonio Express-News

6of8An old motel sign and telephone booth are on display at a museum in Rankin, Texas, Thursday, July 26, 2012. Located 55 miles south of Midland, it is near Santa Rita No. The well started producing oil in 1923 funding the University of Texas and later Texas A&M.Photo: Jerry Lara, San Antonio Express-News

7of8Satellite dishes are used on trailer homes at the Black Gold RV Park in Big Lake, Texas, Thursday, July 26, 2012. The trailers each house up to six workers. With the drilling boom in the area, a man-camp has opened just north of the town.Photo: Jerry Lara, San Antonio Express-News

8of8Photo: Mike Fisher

MIDLAND — Nearly 30 years ago, Texas Monthly ran a post mortem on the Texas oil industry with a cover headline reading, “So long, it was fun while it lasted,” and a forlorn James Dean figure hitchhiking out of town.

Back then, few would have differed, as the mother of all busts was destroying the West Texas banking industry, making oil barons into car salesmen and turning parts of Midland and Odessa into junkyards of rusting equipment.

Triggered by an oil glut that caused a relentless price decline, the West Texas crash of '82, and the long depression that followed, chased most of the industry majors out of the Permian Basin and an entire generation of oil field workers into other livelihoods.

“In 1983, they thought the oil industry in Texas was done,” said Doug Robison, president of the Permian Basin Petroleum Association, who keeps a worn copy of the July 1983 magazine in his office.

But, as the saying goes, the obituary proved a trifle premature.

As anyone who has tried to rent a house, navigate traffic or lease drilling equipment around here knows, the good times are rolling again. A strong demand for oil coupled with refined hydraulic fracturing and horizontal drilling techniques are tapping long untouchable, deep reserves.

What began a decade ago as a modest revival now is a full-fledged boom. The play extends across hundreds of miles of West Texas and into New Mexico, from Mentone east to El Dorado, and it is reviving long dormant backwaters.

The best indicator, the Baker Hughes rig count, recently hit 442, after bottoming out in 1999 at 51.

“I had a family emergency the other night, and when I got back into town at 4 a.m., it looked like Interstate 10 because of the oil field traffic,” said Crane County Judge John Farmer, who lives southwest of Odessa. “Anything within 150 miles of Midland and Odessa is the same way. Even in Stanton, which was all cotton fields, they're drilling oil wells now.”

There are now more than 155,000 producing wells out here, generating revenue and requiring service for years to come.

“It's unbelievable. This has 50 years worth of life. They'll be redrilling the entire Permian Basin,” exclaimed Jim Smitherman, CEO of Security Bank in Midland, one of the few banks to survive the last bust.

Filling pockets

Airport hangers in Midland now are jammed with private planes, there's a three- to four-month wait to join the Petroleum Club and many of the service companies lining Interstate 20 keep “Hiring” signs out front.

A freshly graduated petroleum engineer can make $80,000 a year, sometimes with a $10,000 to $20,000 signing bonus tacked on. Roughnecks and truck drivers willing to work killer hours can gross over $100,000 a year.

From the first commercial well, drilled in Mitchell County in 1921, oil and gas have written the history of the Permian Basin, a vast ancient seabed riddled with hydrocarbons, where catastrophic busts have often followed spectacular booms.

The cycle this time around will be different, said Robison, president of EXL Petroleum. No longer does the oilman's fate depend solely on luck and the capricious world price of oil.

Instead of hitting only one of 10 holes, some drillers who are tapping once inaccessible formations and using new extraction techniques expect to find oil most of the time.

“Historically, oil and gas has been a destroyer of capital,” Robison said. “But that paradigm has changed. It's a new industry. If you can drill 200 to 300 new wells, and if every single one is economic, that greatly reduces the risk of loss of investment.”

The boom also has sweetened royalty payments and lease bonuses for landowners.

“Anymore, a 25 percent royalty is standard, and it's not unusual to find $1,000 to $3,000 bonuses per acre in really hot areas,” said Arlen Edgar, 78, a longtime oil and gas investor.

“There's a lot of money to be made. If you look at daily production in the Permian Basin, which is approximately a million barrels a day, that, along with the gas, represents $2.5 billion to $3 billion a month in production revenue,” he said.

But booms also bring foreboding. Economist Karr Ingham, who tracks the region's oil and gas economy, is beginning to hedge his bets.

“This has been a pretty extraordinary run since 2009. The rig count is actually higher right now than it was during the peak of the 1980s, and that's a pretty stunning development,” he said.

But, he noted, for the past three months the oil and gas industry index has declined.

“These are deep wells with a very high cost basis, so I'm kind of wondering aloud if this drop in crude prices will put the brakes on activity,” he said.

Labor shortage

City leaders in Midland and Odessa, meanwhile, are quietly digesting forecasts that, if the boom holds, their populations could double within two or three decades, creating an Interstate 20 metroplex of at least 400,000 people.

Since 2000, the combined populations of Midland and Ector Counties have risen by more than 40,000 people, to about 280,500, according to the U.S. census. Median family incomes have also increased by more than a third.

“In some of the projections, we'll add 100,000 to our population, which is a whole new city,” said Courtney Sharp, city manager of Midland, which is afloat in tax revenue.

Sales tax income for Midland went from $13.4 million in fiscal 2001 to $29.4 million in fiscal 2011. So much money is flowing in that the city's reserve fund is now equal to about half its general fund, double what it used to be.

The wealth has triggered an ambitious capital improvements program. Midland will soon build a new fire house while remodeling two others, and will build a new municipal court building. Extensive new roadwork also is planned.

Sharp is hopeful that this surge may not end with a sickening crash as so many others have.

“We talk constantly to the industry and we're hearing it's a 15-year to 20-year play because of the new technology. Even if oil drops to $60 a barrel, there will be drilling. And even if they stop drilling, there are so many producing wells that will require servicing,” he said.

Richard Morton, the city manager in nearby Odessa, said city leaders there are pondering similar growth forecasts, while trying to cope with problems caused by the boom.

“We normally have budgeted 913 positions on the city payroll, but we have 104 vacancies we're having trouble filling. A lot of them are labor positions. We're competing against the oil fields,” he said.

“We're having a serious labor shortage and a serious housing shortage. All our motels during the week are 100 percent occupied. The developers are building houses and hotels as fast as they can, but it's hard to keep ahead of the curve,” he said.

So far, unlike the last big boom, which brought a Rolls-Royce dealership to Midland and conspicuous consumption to a level that suggested mental imbalance, this time around, people are being a bit more cautious.

“Euphoria has not set in, nor the craziness. By craziness, I mean like when someone buys an airplane and likes it so much they buy their wife one. This time you see an intelligent approach and more long-term planning, meaning more than this week's price of oil,” Midland County Judge Mike Bradford said.

“It's a horribly difficult lopsided market. I don't know how many calls we get every day asking if we have any properties to lease, and the answer is normally no,” he said.

McDonald said the demand has driven up rental rates and sales prices for all homes. An ordinary brick veneer three-bedroom, two-bath home that rented for $1,000 a month seven or eight years ago is now going for twice that, he said.

According to City Manager Sharp, this year Midland issued a record 550 building permits for new homes, seemingly impressive until it is compared with the shortfall in single-family homes.

“We're about 5,000 units behind right now and that is growing,” he acknowledged.

Evidence of the housing shortage is seen in the sold-out third-rate motels on Business 20, the crude RV parks and man camps springing up on roadsides, and in the frantic pleas on Craigslist in the “Housing Wanted” category.

Oil industry workers are trying to make the best of it, including a group of families living in an encampment of about 30 trailers on the interstate just west of Midland.

“We've been living here six months. This is our living room,” said Toni Robertson, 46, sitting with friends under a canopy outside a white trailer, while keeping cool with beers and a water mister.

The Robertsons are from Merkel, about 130 miles up Interstate 20, and for four months last year Bryan Robertson, 44, drove two hours each way because he couldn't find a place to stay in Midland.

“It's not that I can't afford it, but I'm not paying $100 a night for a ratty-ass motel room,” he said.

That ordeal ended in January when they hauled a FEMA trailer from East Texas to the RV park, where the rent is $400 a month. They now live just across the interstate from a cluster of large white chemical storage tanks.

Bryan Robertson, 44, who drives a vacuum truck, works long hours, sometimes making $2,000 or more in a week. Even his son Brandon, 17, sees the need of it all, despite being far from his hometown friends.

“I hate it, there's nothing to do here. I want to get out and do things, but I don't drive,” he said. “But I'd rather be here than somewhere else and be completely broke. This is where the money is.”

Caren's Cafe

The widespread boom has reached Loving County, 130 miles west of Midland and the least populated county in the state. While only about 85 people live here permanently, the population rises and falls dramatically each day.

“We have 1,000 to 1,500 people here during working hours. They commute from Hobbs, New Mexico, to Midland and Odessa,” County Judge Skeet Jones said.

“People have knocked on the courthouse door asking if anything is available to rent or a trailer park, but there is nothing here,” he said.

A constant parade of oil tankers and heavy trucks now runs through town, and the traffic is destroying the county's road system.

“We don't have any paved county roads, and the last four years, we've spent over $350,000 each year just on roads,” he said, adding that the county plans to pave about 30 miles of caliche road.

“We're going to raise about $16.4 million. This will be the first big bond issue in over 70 years,” he said.

Only about a dozen people live in Mentone, the only settlement in Loving County. Aside from a new county building, it's little more than a collection of aging housing, junk cars and rusting oil field equipment.

But Mentone soon may have its own modest business boom.

“It's crazy. It used to be you could pull out of the store and there would be no traffic for miles. Now you're gonna get hit if you don't look both ways twice,” said Caren Calloway, 47, who tends the town's only business, a small convenience store, but hopes to open an eatery.

Customers leave donations in a jar on the counter marked “Caren's Café,” and if all goes well, in a couple of months, breakfast will be served.

“Let's face it, everybody's got to eat. There's nothing out here and there's a lot of traffic all night.”